GE, Pratt Margins Could Suffer as Competition Heats Up for Engines

By Avi Salzman

General Electric (GE) and Pratt & Whitney, a division of United Technologies (UTX) appear to be competing particularly hard to win new customers for their airplane engines, writes Vertical Research Partners analyst Nicole Parent.

Parent talked to executives for the companies at an air show in Le Bourget, France and writes that the companies appear to be offering discounts on service and spare parts that she had not heard about before in order to win new contracts. GE Aviation President and CEO David Joyce told Parent that Pratt is discounting its pre-delivery payments “like nothing he has ever seen.”

Although the companies say that the discounts are nothing new and in line with their previous actions, Parent is convinced that they indicate the environment is particularly competitive among the engine-makers as they battle to win business.

“Bottom line is, this is a tough fight between Pratt and GE and the margins of both may suffer for a while versus prior expectations as they duke it out,” she writes.

“So at the end of the day when we roll up all we heard and know as it relates to Aviation, we are pressed to see strong profit growth in 2012 despite the ++ that GE shows on the slide.”

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